As the Compliance Net Tightens...

Over the past several years, the seemingly routine relationships between all sides of the medical and scientific communities have come under increasing scrutiny in response to well-publicized concerns over issues of physician independence and conflicts of interest.

As part of the health reform bill—the Patient Protection and Affordable Care Act (ACA) passed in 2010—Congress included requirements for life sciences manufacturers and group purchasing organizations (GPOs) to report certain types of financial and physician ownership interests. The provisions are commonly referred to as the "Sunshine" provisions because they are designed to shine a bright light of transparency on the personal financial interests of physicians and on the institutional financial interests of academic medical centers, as they relate to life sciences companies. In particular, ACA requires that certain manufacturers of covered drugs, devices, biologics, and medical supplies annually report to the Secretary of HHS "payments or other transfers of value" to physicians and to teaching hospitals. Further, the ACA requires that these same manufacturers, along with GPOs, report information regarding the ownership or investment interests held by physicians (or their immediate family members) in such manufacturers and GPOs, along with payments or other transfers of value to such individuals. Although the ACA itself sketched out the basic reporting requirements, the true impact of the provisions will depend largely on the promulgated regulations.

On December 19, 2011, CMS issued the much-awaited proposed rule, entitled "Medicare, Medicaid, Children's Health Insurance Programs: Transparency Reports and Reporting of Physician Ownership or Investment Interests" (the Proposed Rule). The Proposed Rule warrants careful review by life sciences companies. CMS affirms in the preamble that collaboration between the life sciences sector and the healthcare provider sector is important and can serve a vital public health function, and that the purpose of the Sunshine provisions is not to chill or discourage such relationships. However, anecdotal reports indicate that even just the steps taken to date to promote transparency have prompted companies and individual and institutional healthcare providers to become more wary about entering into such relationships. For many physicians (and their immediate family members), the Proposed Rule would make public, in significant detail, what would otherwise be private and personal financial information. For manufacturers and GPOs, the Proposed Rule will necessarily require a compliance regime specifically to meet the requirements—and has the potential to significantly change the way these companies operate.

While the Proposed Rule tracks the requirements of the ACA, it also incorporates a number of discretionary scope-setting decisions and certain refinements which will significantly impact industry:

All or Nothing Model

The Proposed Rule intends that manufacturers that produce more than one product are covered by the Act are regulated manufacturers even if only one product in that diversified portfolio is a covered drug, device, biological or medical supply regulated by the ACA. Further, the Proposed Rule would require that a manufacturer report all transfers of value to physicians and teaching hospitals, regardless of whether any particular transfer is associated with a portfolio product that is a covered product. Thus, larger companies with significant portfolios that include products that are not covered drug, devices, biologics and medical supplies would find that they would have transparency obligations for financial relationships that related solely to otherwise non-covered products.

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